Anyone aged 18 or over who is employed under the UK PAYE system, provided their employer is willing to participate in the scheme.
The employer purchases a voucher that allows the employee to lease a bike of their choice directly from the scheme.The voucher cost is equivalent to the bike's price, so a £1,500 bike requires a £1,500 voucher.
The employee repays the voucher cost by sacrificing a portion of their gross salary (before tax and National Insurance). This arrangement lets the employee save on the tax and NI they would normally pay if they bought the bike using their net salary (after tax). It also saves the employer 15.05% on their National Insurance contributions, making it advantageous for them as well.
Basic rate taxpayers typically save around 33.25% on the bike’s cost, while higher rate taxpayers save about 43.25%. For additional rate taxpayers, savings can reach up to 48.25%. Employers generally benefit from a 15.05% saving on their National Insurance contributions.
For example, if an employee chooses a bike worth £3,000, their gross salary is reduced by £250 each month. Due to this reduction, a basic rate taxpayer pays a net amount of just £167 per month, while a higher rate taxpayer pays £142. Over a twelve-month period, this amounts to £2,004 (standard rate) or £1,704 (higher rate), resulting in savings of £996 or £1,296, respectively. Additionally, the employer saves £451 in National Insurance contributions.
This scheme does not include a high exit fee, unlike others that may charge up to 7% of the bike’s total value. Instead, it allows the employee to fully benefit from HMRC’s tax relief. After a five-year loan period, the title of the bike can be transferred to the employee for a nominal fee of £1. This small fee is primarily for HMRC record-keeping purposes to protect the employee from any potential claims.
No, employees are not required to cycle to work daily. HMRC rules only state that the majority of bike journeys should be for commuting to and from work. Neither employers nor employees are required to keep detailed logs of bike usage. What if the bike is lost or stolen?
The employee is responsible for the bike's maintenance and security. Even if the bike is lost or stolen, the employee must continue to make hire payments for the duration of the lease. It is highly recommended that the employee purchase insurance for the bike.
If an employee leaves their employment during the lease period, they are required to pay any remaining hire payments as outlined in the agreement. These payments will cover the full amount still owed and will not include any tax benefits.
There are no maximum cost restrictions for electric bikes or related safety gear and accessories that can be bought through the scheme. However, HMRC rules prohibit the purchase of certain accessories, like GPS devices, cycle computers, and car racks, under the scheme. These can still be bought separately by the employee and used with the bike.
